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Faced with criticism for slashing interest rate on deposits by 1.25% for 2011-12, the retirement fund body EPFO may raise it to 8.6% for this fiscal to benefit about 5 crore subscribers.

Last month, the Employees' Provident Fund Organisation (EPFO) had brought down the rate of interest to 8.25% for 2011-12 from 9.5% provided in 2010-11, evoking sharp criticism within and outside Parliament.

"EPFO is working on income estimates to provide 8.6% rate of return on provident fund deposits during this fiscal," a source privy to the development said.

He further said the EPFO's apex decision making body, Central Board of Trustees (CBT), headed by the Labour Minister could meet next month to take a call on the issue.

The source said EPFO can provide higher returns in the current fiscal as the government has increased interest rate on Special Deposit Scheme (SDS) 1975 to 8.6% from 8% with effect from December 1, 2011.

The EPFO has parked about Rs 55,000 crore in the scheme which was launched by the Central government on July 1, 1975 to provide better returns to non-government provident funds and other such funds.

"EPFO was finding it difficult to maintain rate of return above 8.5% because of low interest rate on investment in SDS. But since that income would go up, it would be easier to provide interest rate over 8.5%," EPFO trustee D L Sachdev told PTI.

He said the other investments made by EPFO are well managed by the fund managers and yield rate of returns which are higher than 8.5%.

During the previous CBT meeting, the unionists had demanded matching EPFO's interest rate with that of Public Provident Fund (PPF). The government has hiked PPF rate to 8.8% from 8.6% last month.